Revenues in our federal government segment increased $38.8 million, or approximately 5%, of which 4% is due to internal
growth. The lower growth in the federal government segment is the result of the loss of the desktop services contract with
the United States Senate, which was not renewed effective June 30, 2002 and weak new business signings in the civilian
As a percentage of revenue, operating expense decreased 0.6% to 86.3% in fiscal year 2003 from 86.9% in fiscal year 2002.
Wages and benefits increased $366.9 million, or 27% in fiscal year 2003. As a percentage of revenues, wages and benefits
increased 1.2% to 45.3% in fiscal year 2003 from 44.1% in fiscal year 2002 due to increased business process outsourcing
services in our revenue mix. The increase in business process outsourcing services is primarily the result of our 2002
acquisitions of AFSA and Andersen, as well as new business growth. Prior to the acquisition, AFSA served as a sub
contractor on the Department of Education contract, and therefore the payments to AFSA were included in services and
supplies. Subsequent to the acquisition, AFSA's employee costs related to this contract are included in wages and benefits.
In addition, business process outsourcing ("BPO") services have a higher component of wages and benefits than traditional
technology outsourcing. BPO services accounted for approximately 68% of our fiscal year 2003 revenues as compared to
approximately 63% in fiscal year 2002.
Services and supplies increased $105.9 million, or 12%, to $1.0 billion. As a percentage of revenues, services and supplies
decreased 2.7% to 26.3% in fiscal year 2003, primarily due to the acquisition of AFSA in June 2002 as discussed in wages
and benefits above.
Rent, lease and maintenance expense increased $73.2 million to $351.9 million in fiscal year 2003. As a percentage of
revenue, rent, lease and maintenance increased 0.2% to 9.3% for fiscal year 2003 due to new information technology
outsourcing contracts in our commercial segment. Information technology contracts have a higher component of rent, lease
and maintenance than our other lines of business.
Depreciation and amortization increased $41.6 million to $152.1 million in fiscal year 2003. As a percentage of revenue,
depreciation and amortization increased 0.4%, to 4.0%, due to capital expenditures during the year resulting from our growth
and increased customer related intangible asset amortization as a result of acquisitions during fiscal years 2003 and 2002.
Other operating expenses increased $18.0 million to $52.6 million during fiscal year 2003. As a percentage of revenue, other
operating expenses increased 0.3% due to increased legal and marketing expenses.
Our operating margins increased 0.6% to 13.7% during fiscal year 2003 due to a decrease in services and supplies as a
percentage of revenues, offset by increases in depreciation and amortization, wages and benefits and other operating
expenses as a percentage of revenue as discussed above.
Interest expense decreased $5.4 million to $25.2 million primarily due to lower average outstanding borrowings and lower
borrowing costs, resulting from the conversion to equity of the 4% Notes in March 2002 and reductions in amounts
outstanding under our credit facilities.
Other Non Operating Expense (Income)
Other non operating expense in fiscal year 2003 includes $3.4 million of write downs of long term cost basis investments
during fiscal year 2003. Other non operating expense in fiscal year 2002 includes $8.4 million of write downs of long term
cost basis investments and a $2.3 million loss on the sale of a business unit.
Our effective tax rate of approximately 37.5% exceeded the federal statutory rate of 35% due primarily to the net effect of
state income taxes. Our effective tax rate increased 1.2% for fiscal year 2003 to 37.5% from 36.3% for fiscal year 2002.
Included in tax expense in fiscal year 2002 are certain tax benefits of approximately $4.3 million resulting primarily from
recently enacted federal income tax rules that provide for a larger tax deduction associated with our June 2000 divestitures
and deferred tax adjustments to reflect realization of tax deductions for which their probability is no longer uncertain.